Companies & Industries

The Real Lessons From the Fates of BlackBerry and Nokia

In all the recent coverage about the fall of once-mightyBlackberry (BBRY), something was missing. The press and pundits were all correct that the original smartphone leader paid a heavy price for its continued failure to respond to the iPhone disruption. But former cell phone king Nokia (NOK) also made a remarkably similar series of blunders over the same time frame. Could it be that management at two sophisticated technology companies was that inept? Or is there another way to explain the relentless erosion of two of the world’s most valuable business franchises?

The strategic choices the two companies should have made are fairly obvious: The iPhone proved instantly that consumers wanted not just better phones but well-designed mobile Internet devices. More interesting, then, are the organizational design choices the companies should have made to maximize the odds of discovering and executing a successful strategy in the face of a rapidly transforming industry.

Silver bullets are lacking when industries are transforming, but the companies could have done at least two things differently: diversify top leadership, including senior management and boards of directors, and build corporate cultures characterized by healthy paranoia.

To be fair, danger may have been difficult to see back in the heady days of 2007. Blackberry was the first to effectively put e-mail into the pockets of business folk around the world. Its elegant system worked anywhere and was bandwidth- and data-efficient. Meanwhile, Nokia figured out ways to scale the production of small mobile phones with long-lasting batteries. A $10,000 investment split between the two at the beginning of 2007 was worth $22,700 by yearend. Both appeared on numerous “most innovative companies” lists. In November, Fortune ran a cover story asking “Can Anyone Stop Nokia?”

The answer turned out to be a resounding “yes.” Nokia’s market cap was once more than €110 billion ($149.4 billion). In September of this year, Nokia sold its mobile handset business to Microsoft (MSFT) for about $7 billion. The market value of Research in Motion once stood at $83 billion. Last month, it announced it would go private by selling itself to an investment group for a less than $5 billion.

Within a year or two of the iPhone disruption, leaders at both Blackberry and Nokia knew of the grave dangers to their businesses. Yet they were never able to respond effectively, even as Google (GOOG) and its Android division showed it could be done. What kind of organizational capabilities could have averted—or at least mitigated—such corporate disasters?

Companies that have had a decade-plus run scaling a business often have leaders who grew up living that model. What’s more, board members were the ones that shepherded the journey. Once they get to a certain scale, they get board members from other big companies to help with the challenges of running large, global enterprises. The resulting lack of diversity makes it too easy to default to perpetuating the status quo, sometimes unintentionally.

Both companies featured impressive outside members on their boards. Nokia’s boasted German software giant SAP (SAP) Chief Executive Officer Henning Kagermann and Marjorie Scardino, then CEO of publishing giant Pearson (PSON:LN). Innovation thought leader Roger Martin and the chief operating officer of the Royal Bank of Canada (RY:CN) sat on BlackBerry’s board. A board and leadership team facing such a stark industry transition would have members with experience in:

• Different industries, including first-hand experience with the driver of industry transformation (in this case, Internet-based businesses or personal computing).

• Non-business roles that require radically different frames of reference to help bring non-linear insight into discussions.

• Circumstances characterized by radical uncertainty to help guide the company through the fog of innovation.

• Previous market transitions.

Consider Apple’s (AAPL) Board. Eric Schmidt from Google brought a different and disruptive industry lens. Former Vice President Al Gore surely brought a unique frame to discussions. Art Levinson could play the uncertainty card, based on his experiences as a scientist at Genentech (ROG:VX). Bill Campbell cut his teeth at Apple in the 1990s, and then served as the CEO of a startup before serving as CEO for Intuit (INTU). Whereas Nokia and BlackBerry had Boards seemingly designed for control, compliance, and other challenges of scale, Steve Jobs built a board purposefully designed to encourage what Schumpeter called “creative destruction.”

Further, the executive teams of both Nokia and BlackBerry were packed with people who had grown up in the company. As Roger Martin noted in a fiery 2012 interview, bringing in outsiders is far from a panacea. For instance, Antonio Perez at Kodak couldn’t save that company from filing for bankruptcy protection. But leadership diversity certainly creates conditions that increase the odds of managing transitions.

As best I can tell, Nokia and BlackBerry executives had read and understood the literature related to managing disruptive change. In fact, Nokia’s president was one of the endorsers in 2003 of The Innovator’s Solution, the disruptive innovation playbook by my Innosight colleague, Clayton Christensen. But there is an important difference between academic understanding of a concept and building it into a corporate culture.

“Confirmation bias” is one of the powerful forces that can derail a corporate culture. Any successful company receives plenty of signals that it is succeeding. Look again at how Nokia and Blackberry’s share prices surged, even as Apple and Google entered the mobile phone market. One of the basic challenges of transformation is that by the time the data is convincing, it’s too late to really do anything about it.

A company with healthy paranoia distrusts the data and is restless in its search to create tomorrow’s business model. Companies are always exploring new market spaces; see Nokia and maps and Blackberry and tablets. But if you read reports of these efforts at Nokia or BlackBerry, you see telltale signs of the curse of abundance: Both companies debated and pondered and compromised. By contrast, the paranoid organization innovates with a degree of ferocity that allows it to keep pace with radical changes in the marketplace.

Intel’s (INTC) Andy Grove warned years ago in a book that Only the Paranoid Survive. Such paranoia can be fed (or can result from) consistent and regular mechanisms to tap into the industry’s periphery—the place where new trends and technologies emerge.

After all, market transitions never come out of nowhere. Executives need to live in that periphery by building outposts in innovation hot spots (e.g., Israel, Silicon Valley, and, increasingly, Shanghai and Singapore), having executives regularly visit those markets, and spending significant time with bleeding edge consumers like so-called “digital natives” whose new habits will be tomorrow’s mainstream. Those activities help leaders to sense shifts early enough that they have time to react.

Life offers no guarantees, so Nokia and BlackBerry could have done everything detailed here and still failed to manage very difficult transitions. Certainly their odds of success would have improved. One hopes that today’s market leaders recognize the precariousness of their positions and are learning lessons from these very recent histories to make sure they don’t suffer similar fates.